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What Is Hidden in the Hidden Economy of Pakistan

In: Social Issues

Submitted By novairajunaid
Words 17574
Pages 71

Ahmed Gulzar

Novaira Junaid

Adnan Haider

Pakistan Institute of Development Economics, Islamabad, Pakistan
National Transport Research Centre (NTRC), Ministry of Communications
Beaconhouse National University (BNU), Lahore, Pakistan
State Bank of Pakistan, Karachi, Pakistan

There is a worldwide contemporary debate about the role of the hidden economy in achieving the goal of sustained and inclusive economic growth and development, especially in the context of its spillover effects on the formal economy. For this purpose, policy makers and academicians have made concerted efforts to estimate the size of the hidden economy and to analyze its causes, issues and implications on key macroeconomic variables. However, there is a consensus among the policy makers that a better macroeconomic policy formulation and its true implementation are subject to the proper management of the associated issues of the hidden economy with suitable policy measures. In Pakistan, it is generally assumed that the hidden economy contributes about
30% to 50% to the overall GDP. The purpose of this paper is to estimate more precisely the size of the hidden economy with the determination of its potential causes and implications. Five statistical and structural modeling approaches namely; simple monetary approach, modified monetary approach using dynamic ordinary least square (DOLS), multiple-indicators multiplecauses (MIMIC) approach, electricity consumption approach and labor market survey based approach are used to estimate the size of the hidden economy and to analyze the characteristic nature of its growth over the period. The study also investigates the potential determinants of the hidden economy and various interrelated socio-economic issues in perspective...

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